Setting Per Diem Rates: Best Practices for Your Business to Follow

Figuring out how to compensate employees for business trips can be frustrating. There are so many different ways of compensation. It’s tough to keep track of them all.

One of the most popular compensation methods is to set a per diem rate. Per diem is Latin for “for each day.” Per diem gives employees a certain amount of money they can spend each day.

In this article, we’ll go through everything you need to know about setting per diem rates. We’ll also give you a few tips on how to perfect the process.


  1. Understand Per Diem

It may seem obvious, but understanding how per diem works is the first step in setting effective policy.

The legal aspects of per diem rates can be complicated. Go over the details with your accounting and legal team before making any decisions.

Per diem rates vary from state to state and country to country. If your company operates in multiple states, it gets even more complicated.

Luckily, you don’t need a law degree to understand the ins and outs of per diem.

Here is a good outline from Hotel Engine on how it works.

There are several methods of setting per diem standards.

One is to give your employees a company credit card. Only go this route if you trust your employees to use the card responsibly.

Another method of setting per diem is to reimburse employees for their expenses.

There is some debate about whether or not per diem rates count as taxable income. This often depends on the type of per diem rate.


  1. Know the Types

There are three main types of per diem rates: fixed, partial, and actual expenses.

Fixed rates give the employee a certain amount to spend per day. This is good for standard business trips within the U.S.

Setting a fixed rate gives the employee some flexibility.

Some employees prefer to stay in a cheap motel and splurge on a meal. Others prefer the opposite.

A partial per diem rate covers only the necessary expenses of a business trip. Essential expenses include transportation, lodging, and meals.

Actual expenses cover almost everything. This can be useful when it’s difficult to calculate costs beforehand.

Actual expense rates enable employees to make their own judgment calls.

Going to a fancy restaurant might not be necessary according to the HR department, but it could help your employee score a high-paying customer.


  1. Research the Standards

Check what per diem rates your competitors set for their employees.

Skimping on travel expenses will only upset your employees. It also won’t look very good if competitors are on the same trip spending more money.

Standards for per diem rate differ depending on the type of trip.

Conference trips tend to have set rates. Most expenses will be covered automatically at a conference.

That’s not the case if your employee is traveling to make a deal with a customer or potential partner.

International trips put an extra strain on your employees. You’ll need to spend more money to make sure your staff stays healthy on the trip.

Calculate an extra day for jet lag, flight problems, or other unforeseen changes. Keep in mind that currency rates can change quickly.


  1. Look Up the Location

When traveling internationally, it can be difficult to figure out how much your employee will spend.

If you’re sending staff to popular destinations, it should be easier to plan a budget.

Websites like Statista have information on average costs in the biggest business cities around the world.

Don’t be surprised when employees return from different destinations with radically different prices for the same items.

A cup of coffee in Tokyo might cost twice the amount as in Rome.


  1. Communicate With Your Employees

Good communication is key to any business.

Explain the per diem rate to your staff before they leave on their trip.

Ask them if they have any questions or if they would prefer any changes.

Follow up after the trip. If your employees weren’t satisfied, consider changing the type of per diem rate for the next trip.



Business trips don’t need to be complicated. Setting a good per diem rate is key to ensuring that everything goes smoothly.